6 Wealth Inequality in Scotland

This chapter continues the discussion on the distribution of
wealth in Scotland. There is not a single agreed measure of
inequality - different measures reflect different aspects of
inequality. Preceding sections have provided a description of the
distribution of wealth. In this section, two measures of inequality
are used to monitor whether wealth inequality is increasing or
decreasing over time. The first, the Gini coefficient, is a widely
used measure of inequality. The second, the Palma ratio - which is
based on the ratio of ownership by the top 10% compared to the
bottom 40% - is consistent with the Scottish Government measure of
income inequality in the Solidarity target and is reported here for
the first time.

6.1 Gini coefficient

In contrast to the
previous
chapter, where the wealth distribution analysis was based on
deciles and median values, this section considers the distribution
of household total net wealth and its four wealth components using
Gini coefficients. The Gini coefficient is the most widely used
summary measure of inequality. It is expressed as a number between
0 and 1. A Gini coefficient of 0 represents perfect equality,
whereas a Gini coefficient of 1 represents perfect inequality, with
one specific group or person owning all wealth and the rest owning
nothing. The lower (higher) the value of the Gini coefficient, the
more equally (unequally) the wealth is distributed.

Table 6.1 shows the Gini coefficients for total
net household wealth and its four components over time. For the
first three survey periods, inequality in distribution of total net
wealth was decreasing. However, there was no change in wealth
inequality in the latest period (between 2010/12 and 2012/14):

Net financial wealth remains the most unequally distributed
component of household wealth, with a Gini coefficient of 0.89 in
2012/14. Inequality in the distribution of net financial wealth
decreased in 2012/14, following an increase in 2010/12 around the
levels seen in 2008/10.

Private pension wealth was the second most unequally
distributed household wealth component. Inequality of private
pension wealth decreased consistently over the four survey
periods. However, the distribution remains highly unequal, with a
Gini coefficient of 0.73 in 2012/14.

Net property wealth was more equally distributed than
financial or private pension wealth. The inequality in
distribution of property wealth has been stable across all survey
periods - although it remains quite high, with a Gini coefficient
of 0.65 in 2012/14.

Gross physical wealth remained the most equally distributed
wealth component, with a Gini coefficient of 0.47 in 2012/14.
This is because all households own some physical wealth, such as
washing machines, freezers, telephones
etc. In the latest period,
however, there was a small increase in the inequality of physical
wealth (up from 0.45 in 2010/12).

Table 6.1 Gini coefficient, Scotland 2006/08 -
2012/14

2006/08

2008/10

2010/12

2012/14

Property wealth (net)

0.65

0.64

0.64

0.65

Financial wealth (net)

0.90

0.89

0.93

0.89

Physical wealth (gross)

0.47

0.48

0.45

0.47

Private pension wealth

0.79

0.77

0.74

0.73

Household total net wealth

0.66

0.63

0.61

0.61

Source: Wealth and Assets Survey,
ONS

6.2 Changes in the share of total net household wealth and
its components

Although the Gini coefficient is the most commonly used measure
of inequality in distribution, it does not provide information
about where the actual concentration of wealth exists (
e.g. in the middle or at the
extremes). Moreover, it has been argued that the Gini coefficient
is more sensitive to changes in the middle (Atkinson, 1970) and
therefore, it does not explicitly capture changes at the top and
bottom - which is the focus of much inequality research.

In order to address those issues and provide information on the
possible causes of changes in Gini coefficient measures observed
over time (
table 6.1), additional analysis has been
undertaken, looking at the changes in the share of wealth and its
components across different population groups. The following
analysis, based on the Palma methodology
[21], provides a greater understanding of where changes in
ownership of wealth have occurred across different groups. The
population of Scottish households has been divided into the 'least
wealthy 40%' (deciles 1 to 4); 'middle 50%' (deciles 5 to 9); and
the 'wealthiest 10%' (decile 10), based on total wealth ownership.
The results are summarised in table 6.2.

Table 6.2 Changes in the share of household total
net wealth and its components by bottom 40%, middle 50% and top 10%
of households, Scotland 2006/08 - 2012/14

2006/08

2008/10

2010/12

2012/14

Property wealth (net)

bottom 40%

0.9%

1.0%

1.1%

0.9%

middle 50%

52.2%

56.4%

57.1%

56.6%

top 10%

46.9%

42.6%

41.8%

42.5%

Financial wealth (net)

bottom 40%

1.2%

1.5%

1.0%

0.9%

middle 50%

34.7%

36.6%

30.5%

32.3%

top 10%

64.1%

61.9%

68.6%

66.8%

Physical wealth (gross)

bottom 40%

11.3%

11.7%

13.0%

11.7%

middle 50%

55.3%

53.2%

54.7%

54.3%

top 10%

33.4%

35.0%

32.3%

34.0%

Private pension wealth

bottom 40%

0.5%

0.5%

0.7%

0.6%

middle 50%

35.4%

38.3%

43.5%

45.2%

top 10%

64.1%

61.2%

55.8%

54.2%

Household total net wealth

bottom 40%

4.2%

4.5%

4.9%

4.6%

middle 50%

47.1%

49.4%

51.7%

52.2%

top 10%

48.7%

46.1%

43.4%

43.2%

Source: Wealth and Assets Survey,
ONS

In 2012/14, the decrease in inequality in the ownership of
net financial wealth measured by the Gini
coefficient (
table 6.1) may be attributed to the increase in
the share of financial wealth owned by the 'middle 50%' (an
increase of 1.9 percentage points). While the middle 50% enjoyed a
larger share of financial wealth compared with 2010/12, the
situation of the bottom 40% of households worsened in 2012/14. The
least wealthy 40% decreased their share of financial wealth by 0.1
percentage points, while the wealthiest 10% of households decreased
their share of financial wealth by 1.8 percentage points.

Likewise, the decreased rate of inequality in the distribution
of
private pension wealth measured by the Gini
coefficient (
table 6.1) is likely to be correlated to the
increased ownership rate of this wealth (by 1.7 percentage point)
by households placed in the middle 50% of distribution. In
contrast, the bottom 40% and top 10% of households experienced a
decrease in the share of private pension wealth by 0.1 and 1.6
percentage points respectively.

The increase in inequality of
net property wealth reported by the Gini
coefficient in 2012/14 (
table 6.1) reflects the decreased share in this
wealth (by 0.5 percentage point) by households placed in the middle
50% of the distribution. At the same time, the more detailed
analysis of changes shows that in 2012/14 the situation of
households at the bottom 40% of the distribution also worsened, as
they decreased their share of net property wealth by 0.2 percentage
points compared with 2010/12 (a smaller decrease than seen by the
middle 50% of households). In contrast, the wealthiest 10% of
households increased their share of net property wealth by 0.7
percentage points in 2012/14.

The increase in inequality in the distribution of
household gross physical wealth in 2012/14
compared to 2010/12 (table 6.1) reflects a decreased share (by 0.4
percentage points) in ownership of physical wealth by the middle
50% of households. However,
table 6.2 shows that more significant changes
were experienced by households placed at the bottom and top of the
distribution. In 2012/14, the least wealthy 40% of households
decreased their share of physical wealth by 1.3 percentage points,
while the wealthiest 10% of households enjoyed an increased
proportion of physical wealth (by 1.7 percentage points).

Interestingly, the rate of inequality reported by the Gini
coefficient for
household total net wealth (
table 6.1) remained at the same level for both
2010/12 and 2012/14 implying that the rate of inequality did not
change over the last two survey periods. However, the analysis of
changes in the share of wealth across different distributional
groups (
table 6.2) shows that in 2012/14 the middle 50%
of households increased their share of total net wealth by 0.5
percentage points while the bottom 40% and top 10% decreased their
share by 0.3 and 0.2 percentage points respectively compared to
2010/12.

While the middle 50% of households owned a relatively stable and
close to 50% share of household total net wealth over the four
survey periods, it is worth considering how the observed changes at
both ends of the distribution affected the situation of the least
wealthy and the wealthiest households.

In 2012/14, the Palma ratio
[22] (
table 6.3) for total net household wealth was
9.4, which means that the wealthiest 10% of households owned 9.4
times more household total net wealth than the least wealthy 40%
combined. In contrast, in 2010/12, the Palma ratio was 8.8.
Although the Gini coefficient did not report any changes to the
level of inequality in distribution of total household wealth, the
Palma ratio shows clearly that the situation of the bottom 40% of
households worsened against the top 10% (with the middle 50% owning
a relatively stable share of wealth over time).

Table 6.3 The Palma ratio, Scotland 2006/08 -
2012/14

2006/08

2008/10

2010/12

2012/14

Share of the middle 50%

47.1%

49.4%

51.7%

52.2%

Palma ratio

11.6

10.2

8.8

9.4

Source: Wealth and Assets Survey,
ONS

6.3 Wealth inequality in Scotland and Great
Britain

Inequality in the ownership of total net household wealth in
Scotland was slightly lower than that for Great Britain in 2012/14.
Table 6.4 shows the Gini coefficient for
Scotland was 0.61 compared with 0.63 for Great Britain. However,
wealth inequality in Scotland and Great Britain remains high.

In 2012/14 Scotland was slightly more unequal than Great Britain
for physical wealth, the same as Great Britain for private pension
wealth and more equal than Great Britain for financial wealth and
property wealth.

This differs from the pattern in 2010/12 when Scotland was
slightly more unequal than Great Britain for financial wealth,
physical wealth and private pension wealth and the same as Great
Britain for property wealth and total wealth. However, as
Table 6.4 shows changes are small and overall
inequality remains high.

Table 6.4 Gini coefficient for Scotland and Great
Britain, 2012/14

Scotland

Great Britain

Property wealth (net)

0.65

0.66

Financial wealth (net)

0.89

0.91

Physical wealth (gross)

0.47

0.45

Private pension wealth

0.73

0.73

Household total net wealth

0.61

0.63

Source: Wealth and Assets Survey,
ONS

An alternative way of understanding wealth inequality is the
change in the share of wealth ownership. As in the previous
section, the share of wealth owned by the bottom 40%, middle 50%
and top 10% has also been considered, in order to identify where
the actual concentration of wealth may exist. The results are
presented in
table 6.5.

Total net household wealth is slightly more equally
distributed in Scotland than in Great Britain in 2012/14. This
reflects the higher share of wealth owned by the middle 50% of
households in Scotland compared with Great Britain. The bottom
40% of Scottish households owned a slightly higher share of total
net wealth than those in Great Britain.

Net financial wealth was more equally distributed in Scotland
than in Great Britain in 2012/14. This reflects the greater share
of ownership of financial wealth by the middle 50% of Scottish
households compared with great Britain. The largest influence on
the levels of inequality was the lower share of financial wealth
owned by the top 10% in Scotland compared with Great Britain. It
is worth noting however that the bottom 40% of households in
Scotland owned a smaller share of net financial wealth than those
in Great Britain.

Although inequality in the ownership of private pension
wealth was the same in Scotland as in Great Britain in 2012/14,
the middle 50% of households in Scotland owned a greater share of
private pension wealth than the same group in Great Britain.
Meanwhile, the bottom 40% and the top 10% of Scottish households
owned a smaller share of private pension wealth than the same
groups in Great Britain.

The greater inequality in the ownership of physical wealth in
Scotland reflects the smaller proportion of ownership by the
middle 50% compared to the same group in Great Britain. In
Scotland, the bottom 40% also owned less physical wealth than the
same group in Great Britain; but the top 10% of Scottish
households owned a greater share of physical wealth than the
equivalent group in Great Britain.

Table 6.5 Share of household total net wealth and
its components by bottom 40%, middle 50% and top 10% of households
for Scotland and Great Britain, 2012/14